As India moves gradually from tough “lockdown” to enter an “unlock’ phase, economic and market indicators remain positive for investors – according to the latest Indian Markets report from Shibani Kurian, Head – Equity Research, Kotak Mahindra Asset Management Company Limited. Extracts from their report:
Key highlights
- High frequency economic indicators in India continued to show improving trends
- All eyes are now on the festive season starting from the end of October till the first half of November.
- Government sticks to its borrowing plan for dated securities in H2FY21; Bodes well for bond yields though some concerns on increase in supply still linger on; state finance remain vulnerable
- Monetary Policy Committee (MPC): New external member appointed; Rates likely to remain on hold in the upcoming policy meet on October 9, 2020
- GST collections: Trends improve in August; Trend is positive but partly due to a low base as well as collections pf payments due during May-July 2020
- Rainfall trends remain healthy; This bodes well for farm cash flows and rural demand; Food-grain production likely higher by 2.8% YoY
Indian markets witnessed a fair degree of volatility in the month of September 2020 on the back of global uncertainty heading into the US elections. The large cap Nifty Index fell 1.50% while the NSE midcap index fell 1.52% in September (both in USD terms).
Among the indicators we track, the e-way bill generation is now up to the Feb’20 peak run-rate levels, and up YoY for 7 weeks. Expressway-toll collections are now 3% above pre-COVID levels. Rail freight, unemployment data, electricity consumption and petrol consumption were some of the other indictors which showed improvement.
The key to the direction of the domestic equity markets would be the trajectory of demand post the festive season and the path towards economic growth normalization.
There are expectations around a possible announcement on the fiscal front along with market awaiting the outcome of the monetary policy meeting now scheduled on October 9.
Even as the high frequency activity indicators improved, some cities like Pune, Bengaluru and Mumbai saw a “second wave” of infections with a rise in daily new cases. However, while the new additions rose, the pace of recovery also improved resulting in the reduction in the addition to the active cases. The case fatality rate in India remains below the global averages thereby significantly reducing the probability of another nationwide lockdown.
Thanks to Shibani Kurian, Head – Equity Research, Kotak Mahindra Asset Management Company Limited, and Nikhil Iyer, EVP, Kotak Mahindra (UK) Ltd. – Singapore Branch
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